Interest rate curves on lending markets are naturally upward and this makes total sense:
The higher the demand for leverage - the higher the borrowing rate
But at a certain point when the rates are too high, borrowers unwind their positions and it creates a negative loop for all parties
• Borrowers exit positions and become less capital-efficient
• Lending APR is decreasing along with utilization
• Protocol loses the revenue
At @0xfluid we decided to propose a downward interest rate curve to stimulate borrowers at weETH<>wstETH vault (thankfully Fluid architecture is so flexible that we can adjust all parameters for every vault separately).
As of today, the lenders and protocols earn less if market utilization stays low while borrowers are not incentivized to borrow more or promote the borrowing because it worsens their conditions.
We believe that with a downward interest rate curve, borrowers will be more inclined towards increasing their borrowing positions and promoting the market to others as it will improve their conditions.
Proposed Rate Curve Adjustment:
• Utilization 0%: Rate 0%
• Utilization 50%: Rate 17%
• Utilization 90%: Rate 14%
• Utilization 100%: Rate 100%
Overall, it’s a win-win-win situation:
• For borrowers as borrowing increases their borrow rate goes down.
At 85% utilization, the borrowers will pay only 14.375% APR
• For lenders as borrowing increases lending APR goes up due to higher utilization.
At 50% utilization: the lending APR will be: 7.65%
At 85% utilization: the lending APR will be: 10.99%
• For protocol as borrowing increases protocol’s revenue increases
We believe Fluid is the best place for borrowers & lenders and the best place for weEth leveraging in particular (so as our users)
But we don't want to stop here and seek ways to improve UX further. If this proposal finds community support, Fluid will become the first (afaik) lending protocol to implement a downward interest rate curve.
I am really keen to know your thoughts about the idea of the downward interest rate curve, please share them in the comments below 🙏
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